15. Two-stage DCF model (S4.4) Company Qs current return on equity (ROE) is 14%. It pays out...
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15. Two-stage DCF model (S4.4) Company Q’s current return on equity (ROE) is 14%. It pays out one half of earnings as cash dividends (payout ratio = 0.5). Current book value per share is $50. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11.5% and the payout ratio increases to 0.8. The cost of equity is 11.5%.
a. What are Q’s EPS and dividends next year? How will EPS and dividends grow in years 2, 3, 4, 5, and subsequent years?
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Related Book For
Principles Of Corporate Finance
ISBN: 9781264080946
14th Edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans
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